Australian Finance Market Continues To Be Pioneer in Financial Crisis...Commonweath Bank Raises Rates!

CommBank lifts rates in surprise moveDanny John
June 12, 2009 - 12:37PM
The Commonwealth Bank today raised its main standard variable mortgage rate in a surprise move that reverses a trend of cuts in the wake of the economic downturn.

The move means that customers of the country's largest home loan lender will be paying an extra $18 a month on an average loan of $300,000 from Monday.

And soon after the Commonwealth's announcement, ANZ Bank said its rates were also under review.


The CBA's move marks the first increase in floating mortgage rates since the last cut in official cash rates by the Reserve Bank and reverses the reduction passed on by the Commonwealth at that time.

That will see the rate of its main home loan product rise by 10 basis points from 5.64 per cent to 5.74 per cent.

CBA shares were up 23 cents, or 0.6 per cent, at $37.67 in early afternoon trade.


The rise is a consequence of higher funding costs facing the banking sector as cheaper-priced money borrowed by the country's main lenders over the past few years rolls over to be replaced by more expensive debt being charged for by international credit markets.

Lower than rivals


The Commonwealth has had the lowest standard rate of the major banks and today's move will leave it within seven basis points of the likes of Westpac and ANZ, which have been charging slightly more over the past few months.

"We fully understand that any increase in interest rates impacts on our customers and for that reason, have continued to absorb as much of the additional funding costs as long as we could,'' said Ross McEwan, head of the Commonwealth's retail banking network.

"Unfortunately, we have seen the bank's wholesale funding costs remain high and continue to increase as previous long-term funding matures and is replaced with new funding at significantly higher cost.

"At the same time, due to intense competition for retail deposits, the cost of deposits compared to the official cash rate is extremely high.''

Today's decision is a reflection that despite the state of the economy and the need to keep cash flowing into consumers pocket, the banks are still facing intense cost pressures when they borrow longer-term finance from the debt markets.

Most of the money raised since last October has been with the support of the Federal Government's wholesale funding guarantee and has been consistently priced at well over 100 basis points - one percentage point - above the going rate in short-term financing markets.

First cut since July


Today's increase is the first - albeit small - increase by one of the major banks since July last year when the economy started to going into reverse, prompting the deep cuts in official rates in subsequent months by the RBA.

The Commonwealth has passed on more of those reductions than its competitors but has since found it hard to keep rates at the lowest level.

It also reverses a trend that has been increasingly difficult for the banks to maintain with the National Australia Bank having broken ranks in deciding not to pass any of the most recent 0.25 percentage point cut by the Reserve Bank.


The Commonwealth's new rate puts it on a par with NAB and HSBC, both of whom have been charging 5.74 per cent. ANZ and Westpac are currently at 5.81 per cent, while the latter's new subsidiary, St George, has been offering slightly less at 5.79 per cent.

The new lowest rate is ironically been charged by the Commonwealth's recently-acquired BankWest division which is set at 5.7 per cent.

Market watchers will be closely monitoring whether BankWest now moves in line with its parent given that it benefits from the Commonwealth's funding resources.

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